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SHIPPING OPERATORS: THE PERSPECTIVE

OF GHANAIAN FREIGHT FORWARDERS

BY

PETER DZAKAH FANAM

Post Graduate Diploma (Shipping Management), M.Sc. (Shipping and Transport)

AUSTRALIAN MARITIME COLLEGE

SUBMITTED IN FULFILMENT OF THE REQUIREMENTS FOR THE DEGREE OF DOCTOR OF PHILOSOPHY

UNIVERSITY OF TASMANIA

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I

This thesis contains no material which has been accepted for a degree or

diploma by the University of any other institution, except by way of

background information and duly acknowledged in the thesis, and to the best of the candidate’s knowledge and belief no material previously published or

written by another person except where due acknowledgement is made in

the text of the thesis.

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II

This thesis may be available for loan and limited copying in accordance with the Copyright Act 1968

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III

The research associated with this thesis abides by the National Statement on

Ethical Conduct in Human Research of Australia and is approved by the

Social Sciences and Human Research Ethics Committee of the University of

Tasmania with Ethics Reference number (Ref: H0015046).

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IV

ABSTRACT

Despite a great deal of research already conducted on the competitiveness

of liner operators, existing studies have mainly focused on liner operator

competitiveness from the perspective of shippers, and only limited research

has been conducted from the perspective of freight forwarders. Freight

forwarders not only represent 85% of shippers in dealing directly with liner

operators, they also have valuable insights into the commercial operations of

shipping lines. In this study, the views and perspectives of freight forwarders

have been analysed so as to investigate the competitiveness of ocean

container carriers.

A mixed model method was applied to analyse data collected from 103 valid

responses of Ghanaian freight forwarders, and the results from exploratory

factor analysis (EFA) and confirmatory factor analysis (CFA) reveal six

factors which influenced freight forwarder decisions in selecting liner

operators. Schedule reliability was found to be the most influential factor,

followed by documentation accuracy, service quality, freight rate, quick

handling and environment concerns. The results of qualitative data analysis,

based on the open-ended survey questions, also show that Ghanaian freight

forwarder perceptions of customer service were also a significant factor

contributing to liner operator competitiveness. Based on the study results,

implications for liner shipping companies have also been drawn. For

example, to improve their competitiveness, liner shipping companies need to

focus on factors influential to their customers, especially freight forwarders’

decision to select liner operators as identified by the study. Their marketing

strategies need to cover important emerging issues such as environmental

awareness, sustainable development and corporate social responsibilities in

addition to traditional, well known marketing elements such as service quality

and customer satisfaction.

This study has contributed in a number of ways to the literature on liner

shipping competitiveness. First, it applied both exploratory factor analysis

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V

shipping lines’ competitiveness that have not been previously considered by

similar studies. Second, the study has found that the views and perceptions

of freight forwarders towards liner operators can offer valuable insights into

the competitiveness of shipping lines. Third, it is the first study conducted on

Ghanaian shipping and its freight forwarding sector. Therefore, the results

can be a good reference for countries with similar social and economic

conditions. The methodology developed by the study can also be replicated

to other countries and sectors (air, land, rail and inland waters) to evaluate

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VI

ACKNOWLEDGEMENTS

I am grateful to the Almighty God, through whom all things are possible. He

has given me strength in my weakness throughout this remarkable Ph.D.

journey. This dissertation could not have been completed without the support

and encouragement of my many well-wishers, to whom I would like to

express my thanks.

Firstly, I would like to thank my respected primary supervisor, Dr Hong-Oanh

(Owen) Nguyen for his generous and responsible guidance, constructive

suggestions and excellent mentoring. I am indeed grateful for his partnership

and endless support throughout my thesis journey. My sincere gratitude goes

to him for the key role he played in facilitating my entry into AMC to

undertake this Ph.D. study.

I acknowledge my gratitude to my honourable co-supervisor Dr Stephen

Cahoon for his endless support, mentoring and insightful feedback during this

extraordinary journey.

I wish to thank the Director of the National Centre for Ports and Shipping,

Professor Thanasis Karlis, my current Graduate Research Coordinator Dr

Hossein Enshaei, Professor Nataliya Nikolova, Dr Jiangang Fei, Dr Peggy

Chen, Dr Hilary Pateman, Dr Quazi Sakalayen, Mr Prashant Bhaskar, and all

the academics of the Maritime and Logistics Management (MLM) Department

at the Australian Maritime College, as well as the University of Tasmania for

extending their kind suggestions and support during my research.

Thanks to all staff of the Maritime and Logistics Management Department,

including Ms Jackie Evans, Ms Heather Hepburn and others for providing

excellent executive support throughout the research process. Thanks to all

web survey respondents for sharing their insights and thoughts, without

which the empirical side of this research would not have been possible.

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VII

Isaiah Okorie, Shadi Alghaffari, Ali Alavi, Hadi Vandchali and Jack Dyer in

the Department of Maritime and Logistics Management, and also from the

Engineering group, Rabiul Islam, Ahmed Swidan, Nagi Abdussamie, Md

Al-Amin Baksh, Gregory Cox and all researchers in the AMC research hub and

their families I thank them for making my PhD research life a much more

enjoyable one.

A special thanks to my wife and my children. I owe a debt of gratitude to my

lovely wife Mrs Rebecca Dzakah Fanam for her unending love and

continuous encouragement, which has given me the inspiration to journey

through the low and high tides of research life to reach this ultimate academic

destination. May God continue to bless you and fulfil your heart's desires as

you have laid aside your career to support me through this journey. The

journey of my study would also not have been possible without the prayers

and faithful support of my adorable children. My love and thanks to all of

them: Kafui Dzakah Fanam, Eyram Dzakah Fanam, Nutifafa Dzakah Fanam,

and Jedidiah Mawulorm Dzakah-Fanam who have motivated me. I would like

to thank my late mother for her mentorship, unfortunately she is no longer

with us to witness my graduation as she so desired. My gratitude goes to my

siblings Simon Kobla Dzaka, John Anumu Dzaka and Janet Rabasu Dzaka.

Lastly, I dedicate this doctoral thesis to my lovely wife and my children. God

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In this thesis by monograph, the following papers were published in peer reviewed conferences and international journals:

Fanam, DP and Nguyen, OH and Cahoon S, “An empirical analysis of the influential factors affecting ocean carriers’ competitiveness: Freight forwarders’ perspective”, International Associations of Maritime Economics (IAME 2016).

Fanam, DP, and Nguyen, OH and Cahoon S, “Selection of ocean container carrier from country perspective”, African Journal of Business Management (AJBM/03.10.16/8173 2016) – Under Review

Fanam, DP and Nguyen, OH and Cahoon S “An empirical analysis of the freight forwarders’ buying behaviour implications for the ocean carriers:”, 18th International Conference on Maritime Transport (ICMT 2016)

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TABLE OF CONTENTS

DECLARATION OF ORIGINALITY ... I STATEMENT OF AUTHORITY OF ACCESS ... II STATEMENT OF ETHICAL CONDUCT ... III ABSTRACT ... IV ACKNOWLEDGEMENTS ... VI PUBLISHED PAPERS ... VIII TABLE OF CONTENTS ... IX

LIST OF TABLES... XII LIST OF FIGURES ... XIII GLOSSARY ... XIV

CHAPTER 1 INTRODUCTION ... 2

1.1 RESEARCH BACKGROUND ... 2

1.2 PROBLEM STATEMENT AND MOTIVATIONS... 4

1.3 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS ... 7

1.4 RESEARCH METHODS AND ANALYSIS ... 9

1.5 CONTRIBUTIONS AND SIGNIFICANCE OF THE STUDY ... 11

1.6 STRUCTURE OF THE THESIS ... 12

CHAPTER 2 CARRIER CHOICE CRITERIA ... 15

2.1 INTRODUCTION ... 15

2.2 RELATIONSHIPS BETWEEN PARTIES IN LINER SHIPPING ... 17

2.3 THE ROLE OF FREIGHT FORWARDERS IN LINER SHIPPING ... 19

2.3.1 FREIGHT FORWARDERS AS SHIPPING AGENTS ... 22

2.3.2 FREIGHT FORWARDERS AS CARGO CONSOLIDATORS ... 25

2.3.3 FREIGHT FORWARDERS AS DOOR-TO-DOOR TRANSPORT FACILITATORS ... 26

2.4 THE RELATIONSHIP BETWEEN FREIGHTFORWARDERS AND LINER OPERATORS ... 29

2.4.1 DIFFERENT INTERESTS OF SHIPPERS AND CARRIERS ... 30

2.4.2 SHIPPING LINE COMPETITIVENESS: THE FREIGHT FORWARDER'S PERSPECTIVE 32 2.5 SELECTION OF LINER OPERATORS ... 35

2.5.1 CARRIER SELECTION THEORY: THE FREIGHT FORWARDER'S VIEW ... 36

2.6 INFLUENTIAL FACTORS IN LINER OPERATOR SELECTION………39

2.7 LINER OPERATOR SELECTION: NATIONAL PERSPECTIVES ... 48

2.8 SUMMARY... 52

CHAPTER 3 CONCEPTUAL FRAMEWORK DEVELOPMENT AND JUSTIFICATION ... 55

3.1 INTRODUCTION ... 55

3.2 FREIGHT FORWARDERS' BUYING BEHAVIOUR ... 55

3.2.1 THE BUY-GRID DECISION PROCESS ... 58

3.2.2 THE BUYING PROCESS OF FREIGHT FORWARDERS ... 62

3.3 CONCEPTUAL FRAMEWORK ... 65

3.3.1 CONTROLLABLE FACTORS ... 70

3.3.2 UNCONTROLLABLE FACTORS ... 74

3.4 SUMMARY... 77

CHAPTER 4 RESEARCH METHODOLOGY ... 80

4.1 INTRODUCTION ... 80

4.2 RESEARCH PHILOSOPHY AND APPROACH ... 81

4.2.1 JUSTIFICATION OF THE QUANTITATIVE METHOD ... 85

4.2.2 RESEARCH DESIGN ... 86

4.2.3 THE ANALYTICAL PROCESS OF THE RESEARCH ... 90

4.3 THE GHANAIAN CONTAINER SHIPPING MARKET ... 93

4.3.1 THE GHANAIAN ECONOMY AND TRADE ... 93

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4.3.3 THE GHANAIAN FREIGHT FORWARDING SECTOR ... 102

4.4 SURVEY DESIGN ... 104

4.4.1 SAMPLING ... 104

4.4.2 SAMPLING FRAME ... 105

4.4.3 DATA COLLECTION METHODS ... 106

4.4.4 DESIGN OF THE WEB-BASED SURVEY INSTRUMENT ... 107

4.4.5 SURVEY QUESTIONNAIRE DESIGN ... 109

4.4.6 SECTION A: ORGANISATION PROFILE... 110

4.4.7 SECTION B: FACTORS INFLUENCING FREIGHT FORWARDERS’ CHOICE OF SHIPPING LINE ... 111

4.4.8 SECTION C: OPEN ENDED QUESTION ... 112

4.4.9 SECTION D: RESPONDENT PROFILES... 113

4.4.10 PRE-TESTING ... 113

4.4.11 RESEARCH ETHICS ... 114

4.4.12 WEB-BASED SURVEY ADMINISTRATION ... 115

4.5 SURVEY ERROR CONTROL ... 116

4.5.1 DATA ANALYSIS ... 116

4.5.2 RELIABILITY AND VALIDITY ... 117

4.5.3 DESCRIPTIVE STATISTICS ... 118

4.5.4 RESEARCH ERRORS AND CONTROL ... 119

4.5.5 SAMPLING ERROR ... 120

4.5.6 INDUCED BIAS ... 121

4.6 SUMMARY... 121

CHAPTER 5 RESULTS OF THE RESEARCH SURVEY AND DATA ANALYSIS . 124 5.1 INTRODUCTION ... 124

5.2 CHARACTERISTICS OF SURVEY RESPONDENTS ... 124

5.2.1 SAMPLE ... 124

5.2.2 RESPONDENT ORGANISATION PROFILES ... 126

5.2.3 RESPONDENT PROFILES ... 130

5.2.4 DESCRIPTIVE STATISTICS OF VARIABLES ... 133

5.3 FACTOR ANALYSIS ... 140

5.4 CONFIRMATORY FACTOR ANALYSIS ... 149

5.5 SUMMARY... 160

CHAPTER 6 DISCUSSION OF THE ANALYSIS RESULTS AND IMPLICATIONS ... 163

6.1 INTRODUCTION ... 163

6.2 THE INTERPRETATION OF THE RESULTS ... 164

6.2.1 RESEARCH QUESTIONS ... 164

6.2.1.1 Hypothesis 1 – Schedule Reliability ... 166

6.2.1.2 Hypothesis 2 – Document Accuracy ... 168

6.2.1.3 Hypothesis 3 – Service Quality... 170

6.2.1.4 Hypothesis 4 – The Freight Rate ... 172

6.2.1.5 Hypothesis 5 – Quick Handling ... 174

6.2.1.6 Hypothesis 6 – The Environment ... 176

6.3 THE IMPLICATIONS FOR LINER OPERATORS ... 179

6.4 SUMMARY... 185

CHAPTER 7 CHAPTER 7: SUMMARY, IMPLICATIONS, RECOMMENDATIONS AND CONCLUSIONS ... 189

7.1 INTRODUCTION ... 189

7.2 SUMMARY OF THE STUDY’S MAIN FINDINGS ... 190

7.3 CONTRIBUTIONS OF THIS STUDY ... 193

7.4 LIMITATIONS AND IMPLICATIONS FOR FUTURE RESEARCH ... 195

7.5 CONCLUSIONS ... 197

REFERENCES... 200

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APPENDIX A1 ETHICS MINIMUM RISK APPLICATION ... 254

APPENDIX A2 PARTICIPANT INFORMATION SHEET ... 256

APPENDIX B1 PRE-TEST SURVEY ... 259

APPENDIX B2 PRE-NOTIFICATION EMAIL ... 261

APPENDIX B3 EMAIL INVITATION ... 263

APPENDIX B4 SOFT REMINDER LETTER TO BE SENT TO SAMPLE POPULATION ... 265

APPENDIX C QUESTIONNAIRE... 266

FIGURE D DAILY RESPONSE RATES OF THE SURVEY PARTICIPANTS ... 274

TABLE E-1 CASE PROCESSING SUMMARY – MISSING DATA - (APPENDIX E) ... 275

TABLE E-2 INITIAL COMMUNALITIES – (APPENDIX E) ... 276

TABLE E-3 SIX FACTOR ROTATED COMMUNALITIES - (APPENDIX E) ... 277

TABLE E-4 CORRELATION CO-EFFICIENT (APPENDIX E) ... 278

TABLE E-5 PATTERN MATRIXA TWO FACTORS (APPENDIX E) ... 279

TABLE F-1 INDEPENDENT SAMPLES TEST ... 280

TABLE F-2 CORRELATIONS: (GROUP NUMBER 1 - DEFAULT MODEL) ... 280

TABLE F-3 STANDARDIZED REGRESSION WEIGHTS: (ALL - DEFAULT MODEL) ... 281

TABLE F-4 SQUARED MULTIPLE CORRELATIONS: (GROUP NUMBER 1 - DEFAULT MODEL) ... 281

TABLE F-5 VARIANCES: (ALL - DEFAULT MODEL)... 282

TABLE F-6 COVARIANCES: (ALL - DEFAULT MODEL) ... 282

TABLE F-7 MODEL FIT SUMMARY FOR MODIFIED MODEL ... 283

TABLE F-8 STANDARDISED REGRESSION WEIGHTS ... 284

TABLE F-9 SQUARED MULTIPLE CORRELATIONS ... 285

TABLE F-10 COMPARISON OF FIRST AND SECOND-ORDER MODELS ... 286

TABLE G-1 THE TOP 10 PRODUCTS EXPORT BY GHANA ... 287

TABLE G-2 THE TOP 10 EXPORT DESTINATIONS OF GHANA ... 287

TABLE G-3 SHIPPING COMPANIES OPERATING IN GHANA AND REGISTERED UNDER THE GHANA SHIPOWNERS ASSOCIATION ... 288

TABLE G-4 GHANA'S GDP INDICATORS 2015 (PERCENTAGE SHARE IN USD ... 289

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XII

LIST OF TABLES

Table 2.1: Influential Factors in Liner Operator Selection ... 42

Table 2.2: Carrier Selection Factors from a Regional Perspective ... 49

Table 3.1: Buy-Phases Included in Each Buy-Class of the Buy-Grid Framework .. 59

Table 3.2: Summary of Carrier Selection Variables and their Underlying Factors . 17 Table 4.1: Transport Logistics Management Research Method ... 84

Table 4.2: Questionnaire ... 110

Table 5.1: Descriptive Statistics of Ocean Carrier Selection Variables ... 120

Table 5.2: Importance of Carrier Selection Variables ... 120

Table 5.3: KMO And Bartlett's Test (Initial Run) ... 143

Table 5.4: Total Variance Explained – EFA with 8 Factors ... 144

Table 5.5: Total Variance Explained (6 Factor Model) ... 144

Table 5.6: Six Components Rotated - Pattern Matrixa ... 147

Table 5.7: Summary of SEM Model Fit Measure Acceptable Levels ... 150

Table 5.8: Standardized Regression Weights ... 151

Table 5.9: Model Fit Summary ... 153

Table 5.10: Regression Weights ... 154

Table 5.11: Reliability and Validation of Six Factors ... 155

Table 5.12: Re-Computation of Reliability and Validity of the Six Factors ... 156

Table 6.1: The Findings of Six Latent Constructs ... 165

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LIST OF FIGURES

Figure 2.1: Relationships between Parties in Liner Shipping... 17

Figure 2.2: Cargo Movement via a Typical Transport Logistics Chain ... 24

Figure 3.1: The Freight Forwarder Buying Decision Process ... 64

Figure 3.2: Conceptual Framework ... 66

Figure 4.1: Claimed Features of Quantitative and Qualitative Methods ... 83

Figure 4.2: Analytical Steps ... 91

Figure 4.3: The Map of Ghana ... 94

Figure 4.4: Geographical Location of Ghana... 95

Figure 4.5: Ghana’s Real GDP Growth Rates ... 96

Figure 4.6: Ghanaian Exports and Imports 1995 - 2014 ... 97

Figure 4.7: Ghana Import Liner Shipping Index (2004-2014) ... 99

Figure 4.8: The Performance of Export Trade per Trade Category (2008-2012) . 100 Figure 4.9: Ghana Container Throughput ... 100

Figure 4.10: Market Share of Main Shipowners in Ghana in 2012 ... 101

Figure 5.1: Number of Years Respondent's Organisation had been Operation ... 127

Figure 5.2: Number of Employees Working in the Respondent's Organisation .... 128

Figure 5.3: Type of Business Provided by the Respondent's Organisation ... 129

Figure 5.4: Service Capability of Respondent's Organisation ... 130

Figure 5.5: Respondent’s Position in the Organisation ... 131

Figure 5.6: Years of Experience in the Freight Forwarding Sector ... 132

Figure 5.7: Path Diagram with Standardized Estimates for all Relationships ... 152

Figure 5.8: Path Diagram Six Factors Modified Model of Two Item Deletion ... 157

Figure 5.9: Path Diagram Six Factors Modified Model of the Competitiveness .... 158

Figure 6.1: The Implications of Selection of Carrier ... 180

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GLOSSARY

AGFI Adjusted Goodness-of-Fit Index

AMC Australian Maritime College

AHP Analytic Hierarchy Process

ASV Average Shared Variance

AVE Average Variance Extracted

CEO Chief Executive Officer

CFA Confirmatory Factor Analysis

CFI Comparative Fit Index

CMA CGM Compagnie Générale Maritime Compagnie Générale Maritime

CMIN/DF Minimum Discrepancy/Degrees of Freedom

CR Composite Reliability

DDP Delivered Duty Paid

EFA Exploratory Factor Analysis

ETA Estimated Time of Arrival

FCL Full Container Load

GCNET Ghana Community Network

GDP Gross Domestic Product

GHGs Greenhouse Gases

GIF Goodness-of-Fit Index

GIFF Ghana Institute of Freight Forwarders

HREC Human Research Ethics Committee

IFI Incremental Fit Index

INCOTERMS International Commercial Terms

LCL Less than Container Load

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MICMAC Multiplication Appliqnce a un Classement or cross impact

matrix-multiplication applied to classification

MLM Maritime and Logistics Management

MSC Mediterranean Shipping Company

MSV Maximum Shared Variance

NVOCC Non-Vessel Operating Common Carriers

PCA Principal Components Analysis

PCFI Parsimony-adjusted Comparative Fit Index

PIL Pacific International Lines

PRQ Primary Research Question

RH Research Hypothesis

RMR Root Mean Square Residual

RMSEA Root Mean Square Error of Approximation

SEM Structural Equation Modelling

SMC Squared Multiple Correlations

SPSS Statistical Package for the Social Sciences

SS HREC Social Sciences Human Research Ethics Committee

TLI Tucker-Lewis Index

UNCTAD United Nations Conference on Trade and Development

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CHAPTER 1 INTRODUCTION

1.1 RESEARCH BACKGROUND

It is well known that liner shipping companies rely on fixed regular services,

unlike tramp shipping, which is chartered on a voyage by voyage basis

(Notteboom & Merckx 2006; Samitas & Kenourgios 2007). The sector is

dominated by container trade (Matilionis et al. 2013), and as a result, it is

highly vulnerable to demand volatility. Due to this, liner companies tend to

operate with substantial and chronic levels of excess capacity (Fusillo 2004;

Kou & Luo 2016).

Changes in the global economy and trade over the last decade have had

pervasive impacts on demand for ocean liner services, as well as on

competition between liner operators. First, the global financial crisis erupted

in 2008 and its effect still remains on the buying power of consumers. The

world Gross Domestic Product (GDP) seemed to have recovered slowly in

2013, but it plunged back into recession again, causing many economies to

struggle (United Nations Conference on Trade and Development 2015).

Thus, liner companies are competing for the limited volume of cargo

available.

Secondly, despite the recovery of the global economy and continuous growth

of international trade, overinvestment and the continuous increase in vessel

size approaching 20,000 TEUs has also led to a mismatch between supply

and demand in the liner sector (Drewry Consultancy 2016). This has created

pressure on shipping lines to improve their competitiveness in order to

survive competition in the liner market. The competitiveness of liner shipping

companies in such an increasingly complex market depends on a number of

critical factors that influence client decision making when choosing ocean

container carriers (Fanam, Nguyen & Cahoon 2016; Setamanit &

Pipatwattana 2015). The survival of liner companies depends on their ability

to attract shippers represented by freight forwarders, whose role is to

coordinate container movement from the origin to the destination. Liner

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since customer satisfaction in the liner shipping sector is the cornerstone for

market share increment by the ocean container carriers (Yuen, Thai &

Dahlgaard-Park 2015).

Nearly 85% of all international shipments involve the services of freight

forwarders (Kilibarda et al. 2016). Most businesses use freight forwarder

services to move their products across borders, and approximately 85% of

foreign trade is handled by freight forwarders (Djankov, Freund & Pham

2010; Eun & Seo 2013). Thus, it is of natural interest for them to consider the

role of freight forwarders in liner shipping, especially from the perspective of

the competitiveness of liner operators. Previous studies such as Gupta

(2008), Meixell and Norbis (2012), Maheshika and Abeysekara (2015), Van

den Berg, Roy and De Langen (2015) and Wen and Lin (2015) have

acknowledged freight forwarders as being the key agent acting on behalf of

shippers and dealing with liner operators.

The two primary classifications of legal roles for freight forwarders are that of

agent (for the cargo owner) and the principal (Cain 2014 p25). The original

duty of a freight forwarder is as an agent of the cargo owner, and therefore

they represent and execute the business wishes of that owner. However, in

most cases cargo owners tend to delegate the majority of that responsibility

onto freight forwarders, who can make all critical decisions regarding the total

execution of the carriage. Thus, increasingly it is freight forwarders who are

playing the key role in choosing carriers, and thereby they are becoming the

ones who determine the competitiveness of liner carriers for most routes and

destinations.

The freight forwarders influence in choosing carrier depends on the type of

agency engagement involved, that is, the extent of delegated authority. For

example, a freight forwarder who is playing the role of a clearing agent only

engages in the movement of cargo from the designation port to the premises

of the cargo owner, and therefore does not engage in the selection of

carriers. However, a freight forwarder who plays a role as a consolidator and

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arrangement and coordination of the entire carriage, from factory to

warehouse. Therefore, these freight forwarders exert a great deal of

influence on the choice of carriers. The focus of this thesis is to investigate

this latter role of freight forwarders, where they themselves are solely making

the selection of ocean container carrier without a great deal of influence from

cargo owners, because this role is becoming increasingly prevalent in the

context of the Ghanaian freight forwarding sector.

1.2 PROBLEM STATEMENT AND MOTIVATIONS

The existing literature on liner shipping competitiveness has centred mainly

on the analysis of carrier selection criteria from the shipper's perspective. For

example, Bardi, Bagchi and Raghunathan (1989) studied carrier service

factors observed by United States shippers prior to and during deregulation.

Brooks (1990) analysed the service performance of ocean container carriers

by evaluating the amount of importance that the Canadian shipper attached

to selection factors when purchasing the shipping service from ocean

container carriers. Abshire and Premeaux (1991) examined the perceptual

differences between American shippers and carriers concerning the

importance attached to carrier selection variables by the shippers. Tuna and

Silan (2002) analysed carrier selection factors perceived by Turkish shippers

in the liner shipping service. Lu (2007) evaluated important factors

influencing the service performance of ocean container carriers from a

Taiwanese shipper's perspective. Kannan, Bose and Kannan (2012)

empirically investigated salient factors that India shippers observed when

choosing ocean container carriers, based on the carrier's service quality.

Ben-Akiva, Bolduc and Park (2013) explored carrier selection criteria that

United States shippers perceived as important when buying transport

services from liner shipping companies. Lirn and Wong (2013) evaluated the

level of importance that Taiwanese shippers attached to ocean carrier

service criteria.

However, little attention has been given to the selection of carriers from the freight forwarders’ perspective (Wen & Lin 2015; Yuen, Thai &

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therefore, theoretically it was assumed shippers nominate a carrier and

freight forwarders comply with a carrier nominated by shippers. Practically, it

is the freight forwarders who choose carrier on behalf of shippers and

managed their logistics process (Reid & Burlingame 2015). Undertaking

research related to the selection of ocean container carriers from the

perspective of freight forwarder is valuable for enriching liner shipping

company capabilities and competitiveness in the maritime industry. As shown

in Chao and Chen (2014), Chu (2014) and Setamanit and Pipatwattana

(2015), factors influential to freight forwarder decisions for selecting ocean carriers reflect the competitiveness of liner shipping companies. Competition

in the liner shipping sector by global players in cargo volume attraction

creates a need for shipping companies to position themselves strategically so

as to attract customers to their services. Shippers and freight forwarders both

supply cargo volume to ocean container carriers (Van den Berg, Roy & De

Langen 2015), of which the latter offered more cargo volume than the former. There is no consensus in the literature on the factors affecting the selection

of ocean container carriers. Following the above studies and liner sector

operational performance and profit maximasation, current studies take the

view that freight forwarders predominantly engage in ocean carrier selection,

and therefore their views and experience in dealing with liner companies

should reflect the competitiveness of the ocean carriers beacuse they have

substantial knowledge and are deeply involved in liner shipping operations

(Li, Zichao, Bookbinder & Elhedhli 2012; Saeed 2013). The perspective of

freight forwarders on the selection of carrier is different to that of cargo

owners, because the freight forwarders are agents who have different

interests than that of cargo owners (Murphy, Daley & Dalenberg 1991;

Murphy & Daley 2001). Thus, it is important to investigate salient factors that

are considered by freight forwarders as they make their decisions to choose

ocean container carriers.

Shipping has played a critical role in Ghana’s trade and economic

development, especially because the country is more dependent on

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of goods and services contribute to nearly half of its Gross Domestic Product

(GDP), and its imports are valued at 10% of GDP with an annual percentage

of 2.27 (World Bank 2014). Given the country’s reliance on international

trade, its maritime transport sector has increasingly played an important role

in its economic development. In this way, the maritime sector contributes a significant share to Ghana’s GDP.

The liner shipping sector in Ghana has continued to expand rapidly for the

past number of years due to a shift from labour-intensive agriculture to

capital-intensive manufacturing, which has caused containerised trade

volume to grow by 64%, from 305,858 TEUs in 2003, to 841,989 TUEs in

2013 (Ghana Ports and Harbour Authority 2014). Even during the current

economic downturn, container volume has continued to grow throughout

Ghana, especially due to the post-election crisis in the Ivory Coast. That

crisis placed Ghana in the position of being able to better attract container

volumes from neighbouring landlocked countries (Burkina Faso, Mali and

Niger).

It has also been important to use liner shipping transport to support the

continued growth of the Ghanaian economy to meet cargo owner

requirements. Therefore, the freight forwarders role has become much more

important in achieving this objective. Approximately 95% of Ghana’s foreign

trade is carried by sea (Laursen 2014). This necessitates the use of freight

forwarders, as most cargo owners are engaging them to do that.

Freight forwarders play a key role in facilitating Ghanaian exports and

imports. There are 301 freight forwarders registered with the Ghana Institute

of Freight Forwarders (GIFF). The freight forwarding sector in Ghana

comprises of smaller local and bigger local/foreign multinational companies

like DHL global, Bollore, Panalpina, Comexas, Damco, Antrak, Baj Freight,

Conship, MacDan Shipping, Allship limited, Mass logistics and Freight

Masters. There are also quite a number of medium size local freight

forwarding companies. Increasingly, more freight forwarding companies in

Ghana are operating as consolidators and NVOCCs engaging in entire

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Ghana customs excise and preventive service plays a regulatory role under

the Legislative Instrument Decree (LID 178) by licencing freight forwarders in

Ghana to transact the business of freight forwarding on behalf of their clients

(Ghana Customs Excise and Preventive Service 1993). This process aims to

effectively regulate and control the operations of freight forwarding in Ghana.

1.3 RESEARCH OBJECTIVES AND RESEARCH QUESTIONS

The objective of this study is to examine influential factors considered by

freight forwarders when selecting liner operators, and to provide an analysis

of the ocean carrier selection criteria which affect the competitiveness of liner

shipping companies. Based on this, implications of selection criteria for

ocean container carriers will be provided, so as to develop their marketing and competition strategies. Şakar (2012) argued that as compared to freight

forwarders, who are acting as agents on behalf of many industries for a wider

range of traffic, shippers (exporters/importers) are not likely to have enough

experience for the selection of ocean carriers.

In order to achieve the above research objective, the following research

questions (RQ) will be answered:

RQ1: What are the key considerations for freight forwarders in their selection of liner carriers?

Over the last four decades, the discussion regarding factors influencing

selection of carriers was centred on freight rates/cost and the reliability of

pickup/delivery related issues (Abshire & Premeaux 1991; Cook 1967;

Larson & Gammelgaard 2001; McGinnis 1990; Saldanha et al. 2009).

However, Setamanit and Pipatwattana (2015) noted that the dimensions of

influential factors observed when selecting ocean carriers have changed over

time due to the dynamism fostered by globalisation. Thus, the selection of

carriers by the freight forwarders affects the competitiveness of ocean

container carriers, which leads to the next research question to be

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RQ2: In what ways do freight forwarders’ carrier selection considerations

and practices impact the competitiveness of liner carriers on a particular

route?

The selection of ocean container carriers by freight forwarders has a wide

range of implications for liner shipping companies. Freight forwarder's

selections of carriers may affect shipping line market share with regards to

the amount of cargo volume a carrier can attract and carry per voyage, which

reflects the total revenue a carrier generates. The selection of the “best”

carrier by the freight forwarders can help shippers to reduce overall logistics

costs and improve the delivery of shipper consignments to their intended

destination in real time. The ability of ocean carriers to understand all

selection criteria employed by the freight forwarders could enable them to

respond to those specific criteria in order to attract freight forwarders.

Attracting freight forwarders to a particular carrier like this can positively

impact its competitiveness. Thus, the selection of suitable carriers by freight forwarders’ enhances shippers’ service satisfaction, and thereby directly

causes more shippers to contract freight forwarders for cargo transportation.

However, the selection of suitable carriers poses challenges to the freight

forwarders, which leads to the next research question to be considered.

RQ3: What are the issues facing freight forwarders in the selection of liner operators?

Trade facilitation by freight forwarders poses a challenge through the efficient

coordination of the logistics chain process among transport players, and the

contract of carriage. As business progress issues always emerge, and freight

forwarders are also confronted with these kinds of business challenges.

Issues emanating in the freight forwarding sector can be detrimental to the

existence of freight forwarders as a transport intermediary whose purpose is

to coordinate the movement of goods efficiently and effectively without

distorting the logistics chain.

Freight forwarders face both internal and external issues in their service

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9

reliability, damage-free handling of cargo and favourable freight rates are the

most cited issues discussed in the literature (Ding, Tseng & Hsu 2013;

Maheshika & Abeysekara 2015). This is further discussed in the subsequent

chapter.

Freight forwarders are mainly non-asset based; hence, they do not own the

actual carriers for the carriage of goods. They also largely depend on the

liner shipping companies for the main transport of goods by sea. As a result, freight forwarders have to make the right decision in selecting the ‘best’

ocean carrier for the transportation of goods. In choosing the most suitable

ocean container carrier, a freight forwarder considers various factors before

deciding on an ocean carrier to use.

Data gathered through an online survey will help identify influential factors

affecting the selection of ocean container carriers. Data analysis will be

conducted to test the relationship between these factors. The results

obtained from the analysis will throw more light on how the factors influence

the competitiveness of ocean container carriers, and the results will further

show the weight of importance that freight forwarders attach to each

influential factor.

This study used a structured questionnaire to survey views on the selection of ocean carriers from the freight forwarders’ perspective in the Ghanaian

maritime sector. This collection of data of these is necessary for answering

the research questions. The study employed a web-based survey as the data

collection technique to explore the influential factors guiding freight forwarder

decisions.

1.4 RESEARCH METHODS AND ANALYSIS

There has been a significant shift in the last ten years in the selection of

carriers, with authors such as, Saldanha et al. (2009), Park, JJ and Koo

(2010), Sardana et al. (2010) and Van den Berg, Roy and De Langen

(2014a) concentrating on the analysis of cost as a key driving factor

influencing the choice of carriers as shippers aim to reduce transportation

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10

selection of ocean container carriers from the perspectives of freight

forwarders, because the selection of carriers by freight forwarders

significantly affects the market share and overall profitability of liner shipping

companies. Theoretically, it is the shippers who are considered the decision

makers regarding carrier selection. However, in reality, it is the freight

forwarders who choose carriers on behalf of shippers (Amaruchkul &

Lorchirachoonkul 2011; Flitsch & Jahn 2014).

In this study, the parameters that affect the selection of ocean carriers and

which is found in the previous literature is examined and selected to

constitute the main structure of the survey instrument. Discussions were held

with freight forwarders and academics to check the appropriateness of the

parameters selected from journal papers, and questions were amended

based on discussions held with the academics and freight forwarders.

In order to effectively conduct the proposed investigation and test the weight

of importance that the freight forwarders attached to each selection factor, a

mixed model approach that is quantitative and qualitative (open-ended

questions) has been used, as discussed in Chapter 4 and Chapter 5. For a

quantitative approach, a valid responses 105 was collected from freight

forwarders (with a response rate of 54.4%) in the developing country, Ghana.

After elimination of cases with unengaged responses, 103 cases were used

in the final analysis. Initially, measurement models in confirmatory factor

analysis were tested using AMOS 22 software (Byrne 2013 & Gaskin 2013).

The model was refined from the first-order model to second-order model.

However, no measurement item was excluded from the 16 items identified

during the exploratory factor analysis. The 16 items with six construct

measures were used to test the order model. The proposed

second-order model was found to have a better fit than the first-second-order model, and the

results of the second-order model are then discussed in Chapter 6.

Furthermore, for qualitative analysis of the competitiveness of liner operators,

five open-ended questions were asked. Content analysis was used to

analyse the responses by categorising cases according to themes, enabling

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11

& Hughes 2014; Mason 2002). The open-ended questions findings showed

further new directions on freight forwarder perceptions concerning the

competitiveness of liner operators. However, the open-ended questions

findings reinforced and supported the results of the quantitative analysis.

1.5 CONTRIBUTIONS AND SIGNIFICANCE OF THE STUDY

The present study contributes to the body of knowledge in the field of

maritime transport in a number of ways. The major areas of contribution are:

 From a theoretical perspective, the study examines basic economic theory (the transport service buyer behaviour model) to gain a better

understanding of freight forwarder buying decisions, and thereby

contributes to an understanding of factors involved in freight forwarder

buying decisions. Clearly, the applicability of the theory and

implications for liner shipping, in regards to factors influencing the

selection criteria is demonstrated.

 The study contributes to the literature by integrating data from a developing country into the empirical generalisations, where

managerial implications are identified, and also significant

contributions are made specifically to the context of Ghana.

 This study is the first of its kind to investigate carrier selection from the perspective of freight forwarders in the context of Africa, and it

provides a platform for other empirical investigations to be carried out

in future research.

 The conceptual framework proposed in the present study is validated

with high explanatory power, and it achieves a good fit to the data.

Therefore, the study contributes to the literature by validating the

factors in the model. At the same time, the qualitative information

provides support to schedule reliability, document accuracy, service

quality, as well as freight rate within a carrier's competitiveness.

 While this study has chosen carrier selection variables from the extant

literature, the appropriate methodological process has been followed

for testing their reliability and validity (Campbell, DT & Fiske 1959;

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12

 The study applied both first and second-order models throguh factor analysis to identify the influetial factors affecting a choice of liner

operators.

 Finally, this study is the first to test the hypothesis regarding significant factors impacting the competitiveness of liner operators from a freight forwarder’s perspective, by applying both exploratory factor analysis

and confirmatory factor analysis in the maritime sector.

In Chapter 7 (section 7.3) further details of these contributions are discussed.

The current study is expected to provide a better understanding of the

competitiveness of liner shipping, especially from the perspective of freight

forwarders, where previously only limited research has been carried out. The

study identifies the influential factors in ocean carrier selection by freight

forwarders, and provides an analysis of the relationships between these

factors (Research Question 2). It also reveals the key issues facing freight

forwarders, and based on this, draws implications for liner operators, freight

forwarders, shippers and researchers. An understanding of the key factors

employed by freight forwarders will enable liner shipping companies to

improve their competitiveness and develop effective marketing strategies.

Implications from the analysis will also help freight shippers to understand

better the issues facing freight forwarders, and thereby help them to better

manage their relationship with them.

1.6 STRUCTURE OF THE THESIS

The rest of this thesis is structured as follows. In Chapter 2, the extant

literature is examined concerning factors that influence selection of liner

operators from the freight forwarder perspective. Chapter 3 then presents the

research framework and the freight forwarder buying decision model, and its

implications for the competitiveness of liner shipping companies. Chapter 4

outlines the research methodology used in answering the research questions

in order to achieve the research aims. This includes the explanations of the

appropriate data collection method used. The unit of analysis, target

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13

processes, data collection and data analysis are explained in Chapter 4.

Chapter 4 also discusses Ghanaian maritime trade, and more specifically

liner trade and its contribution to the economy of Ghana. The role of freight

forwarders in Ghana and their contribution to the economy development are

all explained in Chapter 4. Chapter 5 conducts the analysis of the web-based

survey data, and investigates the competitiveness of liner operators from the

freight forwarder perspective in regards to factors influencing the selection of

ocean carriers. Exploratory Factor Analysis (EFA) and Confirmatory Factor

Analysis (CFA) are employed to discover significant factors that freight

forwarders consider when selecting ocean carriers.

In Chapter 6, further discussion and interpretation of the results is presented

around the salient factors employed by freight forwarders when choosing

liner operators. The interpretation of results is vital to liner shipping

companies because it will enable carriers to focus their resources on

providing appropriate liner services in order to attract and retain freight

forwarders to use their liner services. Finally, Chapter 7 concludes the

summary of the research findings and offers a discussion of implications. It

also presents contributions made by the research and explains the limitations

and scope for future research.

In summary, this chapter has presented the background and overview of the

research to be conducted. Background information has explicitly stipulated

the research gap in the literature. The research problem, research question

and objective of the study have clearly pointed out the importance of this

study. Given the objective of this study, the following chapter will include a

comprehensive review of the relevant theories which emerged from a

thorough review of the literature, focusing on ocean carrier selection from the

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CHAPTER TWO

LITERATURE REVIEW

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15

CHAPTER 2 CARRIER CHOICE CRITERIA

2.1 INTRODUCTION

The phenomenon of globalisation has made it possible for shippers to

compete in the international market, since it brings the need for delivery to

the right place at the right time. Thus, the emphasis for shippers is to

minimise transportation costs and transit time for consignment delivery.

Consignments are hauled long distances from production centres to

consumers, necessitating a need for the physical carriage of goods by

carriers. As a result, over the past four decades the importance of carrier

selection criteria has become much more of a research focus within

academia and for industry experts. Earlier carrier selection studies focused

mainly on the analysis of carrier choice from the shipper's perspective (Das

1974; Krapfel & Mentzer 1982; McGinnis 1979), with more attention given to

cost as the determinate factor that influences choice of shippers. Shippers

outsource their logistics service activities in order to lower transportation

costs, to decrease consignment lead time, and to respond to international

demand by the customers (Hong, Chin & Liu 2004; Rao & Young 1994;

Wilding & Juriado 2004; Yang & Zhao 2016).

The outsourcing of logistics activities creates the need for freight forwarders

to function as a transport intermediary with active participation in the

international carriage of freight (Rajesh et al. 2011). The outsourcing of

logistics activities to freight forwarders has enabled organisations or shippers

to gain approximately 9% savings and 15% improvement in capacity and

quality (Sahay & Mohan 2006). However, the freight forwarder has to deal

with ocean carriers for the physical carriage of goods on behalf of the

shipper, and has to select a particular carrier for the transportation of freight.

Carrier selection studies mainly concentrate on the examination of influential

factors affecting the selection of carriers based on perceptual differences

between shippers and carriers (Abshire & Premeaux 1991; Jerman,

Anderson & Constantin 1978; Matear & Gray 1993). This perceptual

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16

issue being a level of dissatisfaction with services provided by carriers to

shippers (Gibson, Rutner & Keller 2002; Premeaux 2010). Evans and

Southard (1974) is one of the earlier studies to analyse carrier selection

factors by exploring perceptual differences between shippers and carriers.

Their finding revealed that carriers do not have the views on the important

selection factors as shippers.

More recent studies are focusing on the evaluation of factors affecting choice

of carrier and mode from the perspective of freight forwarders. Most of these

studies have observed factors such as after delivery service, transit time,

safety quality, flexibility, and reliability as the main influential factors that

affect the choice of carrier from the viewpoint of freight forwarders (see for

example Chung, Chung & Tai 2011; Ding et al. 2016; Reis 2014).

This chapter focuses on providing a review of the literature about the issues

and factors which affect the decisions of freight forwarders in selecting

carriers. The review is based on a search of relevant studies using various

search engines, including Google Scholar, Science Direct, Taylor & Francis

Online Journals, Emerald Library, Elsevier, UTAS Library catalogue,

MegaSearch, Conference papers, ProQuest, Web of science, published

books, and PhD thesis, with the purpose of identifying state of art research

and areas of interest for further investigation.

The search results indicate that the selection of ocean container carriers has

not been widely discussed in the literature from the freight forwarder's

perspective. There is a very limited number of studies on the factors that

influence the choice of ocean container carriers from their perspective (see

for example Chung, Chung & Tai 2011; Lin & Yeh 2010; Wen & Huang

2007).

This chapter also provides an overview of the role of freight forwarders in

contributing to the competitiveness of ocean container carriers. The next

section discusses the relationships between parties in liner shipping as the

basis on which the role of freight forwarders and their relationships with liner

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2.2 RELATIONSHIPS BETWEEN PARTIES IN LINER SHIPPING

Figure 2.1 presents the relationships between parties in liner shipping. Figure

2.1 was developed base on the literature review and discussion with

professional freight forwarders and logistics experts. The relationship

between parties include:

 Stakeholders and other service providers – this shows that efficient cargo flow is enabled by other stakeholders within the container

supply chain such as port authorities, terminal operators, stevedores

and customs, and the effective coordination of liner operators with

these network actors is vital for smooth container flow.

 The liner shipping market – is the core business area of liner operators in which they deal with their business-to-business customers such as

freight forwarders, shippers, and the consignees for freight generation.

[image:33.595.123.571.395.703.2]

Source: Author

Figure 2.1: Relationships between Parties in Liner Shipping

Port authorities Terminal operators Stevedores Shipper / Exporter Shipping Warehousing Consolidation Liner Operator Customs Consignee / Importer

3rd party

logistics Freight forwarder Freight forwarder Liner operator’s service hierarchy Stakeholders and other

service providers

The liner shipping market

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 The liner operator’s service hierarchy – this identifies the level of services provided by liner operators such as shipping services,

warehousing, consolidation and third party logistics.

The above relationships are characterised by the following elements:

 The international commercial term (incoterm) contract exists between

the shipper (seller) and the consignee (buyer)

 The shippers or consignees engage in the freight contract, with freight

forwarders for the transportation of cargo from the origin of the

shippers or (seller's warehouse) to their destination (buyer

warehouse).

 The freight forwarders engage ocean carriers in a contract of carriage

for physical transportation of cargo from port of origin to destination

port.

 The ocean carrier undertakes the actual handling of cargo by liaising with other transport actors within the container supply chain by

engaging in a handling contract with port authorities, terminal

operators and stevedoring companies for the safe and fast handling of

cargo through the maritime transport interface.

 Liner operators facilitate the cargo handling process by providing the services of shipping, warehousing, the consolidation of cargoes and

haulage services to assist customers in reducing cost.

The effective collaboration of ocean carriers with terminal operators, port

authorities, stevedore companies and customs can foster the free flow of

cargo through the maritime interface, and significantly improve total transit

time within the container transport chain (Fransoo & Lee 2013). Any delay or

disruption in the container terminal will have a knock-on effect on the other

areas of the container supply chain. For example, a delay in terminal

operations will affect transit time, cost, and service reliability. Likewise, the

ability of ocean container carriers to obtain a berth on arrival or to obtain a

dedicated berth in the port could greatly improve the carrier's port turnaround

time. Freight forwarders as transport intermediaries largely depend on an

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improve the container flow within the logistics chain (Van den Berg, Roy & De

Langen 2014a).

Figure 2.1 indicates that the key selection criteria used in the selection of

ocean container carriers begin with main international commercial terms

(incoterms) contracts signed between shippers (sellers) and consignees

(buyers). Either of the two parties then engages the freight forwarders to

execute the cargo delivery (Grainger 2014). The shippers and freight

forwarders engage in a contract of carriage in which the freight forwarders

assume the obligation to deliver the cargo to the named destination

appointed by the shippers. In most cases, the freight forwarders are obliged

to deliver the cargo to the consignees based on the type of incoterm contract

which has existed between shippers and consignees. For the freight

forwarders to fulfil their obligation of logistics transport for door-to-door cargo

delivery, freight forwarders contract liner shipping companies to undertake

the physical carriage of goods (Van Der Horst & De Langen 2008). As a

result, a carriage of freight contractual agreement exists between ocean

container carriers and freight forwarders. Liner operators offer a hierachy of

services such as shipping, warehousing, consolidation and third party

logistics in order to meet the demand of their customers.

2.3 THE ROLE OF FREIGHT FORWARDERS IN LINER

SHIPPING

The rapid increase in world trade and the relocation of industries to low

labour cost regions requires quick cargo documentation in logistics chains.

The movement of goods across national frontiers requires customs

clearance. Globally however, customs clearance involves “tedious checks, irritating delays and complicated form filling” (Appeals & de Swielande 1998

p.111). Goods need to be processed on-time through customs. Ironically,

customs documentation processing has remained the most difficult challenge

confronting shippers in maritime operations in many countries (Haughton &

Desmeules 2001; Muthuvelatutham & Karuppasamy 2013). As a result,

cause major delays in cross-border cargo clearance for cargo owners

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regulations and procedures tends to be high, especially in developing

countries (Sawhney & Sumukadas 2005). According to (Arvis et al. 2007)

bureaucracy and inefficiency in customs documentation clearance are the

biggest hindrances to international trade. Inadvertently, customs procedures

and clearance times are still bottlenecks in the international logistics chain

(Grainger 2014). More than 70% of the delays associated with cargo

movement is due to administration hurdles, numerous customs procedures,

tax procedures, and cargo inspections, often before containers reach a port

or after leaving a port (Djankov, Freund & Pham 2010). The freight

forwarder's management of the cargo documentation process enables

shippers to sail through rigorous government regulations (Park Choi & Zhang

2009; Reid & Burlingame 2015).

International shippers are looking for single-source suppliers to deliver

door-to-door services on time and at a reasonable cost (Lam & Zhang 2014;

Murphy, Daley & Dalenberg 1992). Banomyong and Supatn (2011) found

that only 19% of shippers like direct contact with shipping companies.

Several factors contribute to the popularity of freight forwarding services.

First, the just-in-time concept and the intensification of globalisation are some

of the factors which necessitate shippers or manufacturers to rely on freight

forwarders for pick-up and delivery of products across international

boundaries from origin to their destination markets (Chuah & Yingling 2005;

Goldberg 1990; Zimmer 2002).

Secondly, the ambiguity of international rules and regulations in logistics

processes are some of the challenges confronting shippers. Since 11/9/2001

international transport has undergone constant and dramatic changes

concerning transportation regulations and standards (Peterson & Treat

2008). Due to risk percieved to be associated with international transport of

goods, especially conternarised cargo, because containers pose a significant

opportunity for terrorist to use as weapon of mass destruction across nations

(Leonard, Gallo & Véronneau 2015). As a result of this, there has been

frequent changes on regulations with regards to international transportation

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international carriage of goods poses a challenge to shippers (Terpstra,

Foley & Sarathy 2012). A typical example is a recent amendment by China,

to introduce a 24-hour manifest rule without any notice to shippers prior to

changes (Knowler 2014). In most cases, smaller shippers who are

predominantly not versatile with transport procedures, especially transport

procedures in foreign countries, tend to contract the services of freight

forwarders to manage their cargo movement (Reid & Burlingame 2015;

Schramm 2012; Tongzon 2009).

Furthermore, as Nordas, Pinali and Grosso (2006) note, shippers in

developing countries face the difficulty of lengthy administrative procedures

related to exports and imports, which prevent local shippers from exporting

time-sensitive products. Shippers are confined to the domestic market

because they cannot meet reliability requirements as demanded by foreign

customers (Nordas, Pinali & Grosso 2006).

Cargo owners can overcome hinterland transportation challenges in foreign

countries through the outsourcing of transportation activities to freight

forwarders (Ducruet, César & Van Der Horst 2009). Cargo owners contract

freight forwarders in international logistics operations as a strategic move to

reduce investment in logistics activities, including capital investment in

facilities, equipment, information technology, and manpower (Razzaque &

Sheng 1998). Shippers outsource logistics activities because they want to

access world-class processes, quality service, a better capability of adjusting

to changing environmental needs, reducing the need for capital investments,

better cash-flow, reliability, and customised and cost-effective logistics

processes (Persson & Virum 2001). Shippers have obtained lower freight

rates through freight forwarders than if the shippers themselves got freight

rates directly from carriers (Lambert & Cooper 2000).

Kokkinis, Mihiotis and Pappis (2006) revealed that only 33% of cargo owners

usually select the carrier, whereas freight forwarders do 67% of carrier

selection on behalf of shippers. Lieb and Miller (2002) explained that over

60% of United States shippers confirmed engaging the services of freight

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The study of Coppersmith (2003) pointed out that more than 60% of domestic

and 90% of international cargo volume are tendered by freight forwarders.

The selection of a carrier for inbound and outbound freight movement is

important for the shippers (Meixell & Norbis 2008), whereas making a reasonable decision to select the ‘best’ carrier by shippers can be seen as a

strategic tool for achieving competitive advantage (Bhatnagar & Teo 2009).

Cargo owners outsource ocean carrier choice to freight forwarders, and only

a few cargo owners select ocean carriers in-house (Gailus & Jahn 2013).

The single largest component of cost in international trade is logistics costs,

often comprising of over half of the total international trade costs (Arvis et al.

2016). The cost of transportation can have a significant impact on a

manufacturer's finished product, and even raw materials are driven by the

cost of shipping (Monczka et al. 2008). The insightful knowledge and

practical expertise possessed by freight forwarders in logistics management

enables them to help shippers minimise logistics costs and delays in cargo

processes (Schramm 2003).

2.3.1 FREIGHT FORWARDERS AS SHIPPING AGENTS

A freight forwarder is a person who primarily coordinates the transportation of

goods on behalf of a consignor or consignee, and acts as a port

representative for an exporter or importer, providing export and import related

services (Ullman 1970). According to Hill (1972) it is not easy to establish an

accurate definition of freight forwarders, owing to the difficulties of

determining the exact scope of their activities which leads to various

definitions about a freight forwarder. The author defines a freight forwarder

as any person who hires his or her services out to the general public so as to

provide and arrange transportation of property for compensation, and who

may assemble and coordinate shipment for such purposes (Hill 1972).

However, Murphy and Daley (2001) have described freight forwarders as

international trade specialists who can provide a variety of functions to

facilitate the movement of cross-border shipments on behalf of shippers.

Additionally, the European Commission (2011) has explained that freight

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23

customs declarations, cargo documents or letters of credit. They strive to

achieve the best possible transport services for customers through the

arrangement of regrouping, storage, management, packaging and the

distribution of cargoes. The services of freight forwarders further include

auxiliary and advisory services regarding the issuing and managing of

documents, customs facilitations, declaring cargos to the authorities, the

insurance of merchandise, and collecting and paying freight (Federation

Internationale des Association de Transitaires et Assimiles 2011). However,

the present study has define a freight forwarder as a person who make

him/herself available for the public to perform part or whole of transport

services of moving goods from origin to destination including documentation

process, logistics operations, professional advice and even representing

exporter (seller) or importer (buyer) in travelling arrangement.

The introduction of the container and its fundamental part in the modern

door-to-door delivery service has broadened the scope of services for freight

forwarders (Cain 2014). In their new capacity, freight forwarders stand in the

gap for cargo owners, to facilitate a smooth process for goods through the

container logistics chain from sender to receiver. In most cases, freight

forwarders generate profits from the difference between the price that

customers are obliged to pay for the requested execution, and the costs of

request fulfilment (Krajewska & Kopfer 2006a). In the international logistics

chain, freight forwarders play a significant role in the various stages of the

transport logistics process in facilitating the smooth movement of goods.

Figure 2.2 shows the role of freight forwarders within the international

transport logistics chain. Freight forwarders who depend on their agency

engagement as NVOCCs may act as a one-stop-shop shipping point for

cargo owners (Murphy and Daley 1995). In this capacity a freight forwarder manages the entire transport chain for cargo owners from manufacturer’s

premises to the consignee’s warehouse. The shippers and consignees deal

with the freight forwarder, who manages the entire transport logistics chain

References

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